Posts Tagged ‘Iron Ore’

It is reported on December 12 that the government of the northeastern Chinese province of Hebei announced the discovery of an iron ore deposit, the Macheng deposit, with proven reserves of 1.044 billion metric tons – the largest such single iron ore deposit found in China since the 1980s.

Located in Luannan, Tangshan city, the Macheng deposit, which will be developed by Hebei Steel Group, has estimated unproven reserves of 500 million metric tons, in addition to its proven reserves.

Moreover, the Macheng deposit is situated at depths ranging from 100 meters to 600 meters, and is comparatively easy to mine. The deposit is 6 km long and 41.43 meters to 108.95 meters thick on average.

According to Lei Pingxi of the China Metallurgical Mining Enterprise Association, China is not short of iron ore resources. Based on the rapid growths in both investment and development in domestic mines, China’s iron ore output is expected to reach 1.1-1.2 billion metric tons by year 2015, Mr Lei said.

Meanwhile, he added that Chinese enterprises are making efforts to invest in overseas mines. It is estimated that by 2015 70 percent of the raw material demand of China’s steel industry will be satisfied by iron ore materials produced by domestic mines and by overseas mines held by Chinese enterprises.

After a surge in demand from China, forecasts for annual contract prices for iron ore, a $160 billion-a year-global market, were raised by Macquarie Group Ltd. and JPMorgan Chase & Co..

Australian benchmark iron ore prices may rise 30 percent, Macquarie analysts led by London-based Jim Lennon said today in a report.

That compares with their previous estimate for a 10 percent gain. JPMorgan yesterday raised its forecast increase to 20 percent from 10 percent.

Steelmakers and traders in China, the world’s biggest consumers, boosted imports 12 percent last month to meet demand from makers of cars and appliances. Iron-ore demand from U.S. and European steelmakers will also increase next year, joining China, Vale SA, the world’s largest producer, said yesterday.

“Undoubtedly, rampant Chinese growth is still the main story in the steel industry,” the Macquarie analysts said. “We remain very bullish on Chinese demand growth through 2010 and beyond, which will create tightness in the steel market during the second half of next year.”

Rio Tinto Group, the world’s second-biggest iron ore exporter, rose 0.5 percent to A$70.85 at the 4:10 p.m. Sydney time close on the Australian stock exchange. BHP Billiton Ltd., the third-biggest exporter, rose 1.1 percent. Both companies had their ratings raised yesterday by JPMorgan.

The four-decade old annual iron ore pricing system was fractured this year after Chinese mills failed to reach agreement with the three largest suppliers. Rio Tinto last week appointed a new chief negotiator with Asian steelmakers, boosting prospects for the latest talks.

Iron ore cash sales have recently been completed at as much as a 45 percent premium to last year’s benchmark and prices may continue to rise in the coming months, Macquarie said. The bank raised its forecast to 125 cents a dry metric ton unit for Australian iron ore fines. That’s about $79 a ton compared with last year’s settlement of about $61 a ton.

China this year demanded a bigger price cut for iron ore than the 33 percent offered to Japanese and Korean mills by Rio and BHP. Baosteel Group Corp., China’s largest steelmaker, this month announced the first price gains for its products in four months as demand rebounds.

JPMorgan boosted its estimates for 2010 earnings per share, at Rio and BHP by 30 percent and 16 percent respectively on higher metals forecasts. Analysts led by David George raised their rating on BHP to “neutral” from “underweight” and Rio was raised to “overweight” from “neutral.”"We never comment on pricing discussions,” said Rio spokesman Gervase Greene. BHP spokeswoman Kelly Quirke declined to comment.

The company has been making efforts to improve its market share in China, the world’s biggest iron ore consumer, especially in light of a controversial production joint venture between its two major rivals, BHP Billiton and Rio Tinto of Australia.

In order to help it compete, the company is planning to set up a regional distribution centre in China, and will cut costs further by building 16 dedicated ore carriers, the China Daily said.

It is also in talks to establish long-term supply contracts with some of China’s smaller steel mills, according to a report in China’s 21st Century Business Herald.

The China Iron and Steel Association has already sent a delegation to Brazil to discuss joint action to oppose the BHP-Rio merger, the Australian Financial Review said this week.

It is reported that the CISA (China Iron and Steel Association) will soon publish supplements for the self-regulation convention of China’s iron ore imports, which were first issued in February.

According to a CISA insider, the supplements will set stricter standards for iron ore import orders, which will involve the list of the 70 steel plants and 42 traders licensed for import.

Obviously, China is stepping up measures to curb surplus imports and prevent hoarding of iron ores for speculative purposes, which will help China during the annual iron ore negotiations with the world’s iron ore suppliers.

Xu Xiangchun, a senior analyst with MySteel, said this signals that related government departments will probably post more regulations concerning the country’s iron ore import market, so as to build a fairer trading environment for the domestic market.

According to a Customs official, the sharp fluctuations in China’s monthly iron ore imports may be a result of speculative activities.

According to the latest Customs statistics, October’s iron ore imports dropped almost 30 percent on month to 45.47 million metric tons (tonnes), but the iron ore imports increased nearly 30 percent month on month in September.

The import fluctuations are connected with price changes. The iron ore import price dropped to 73.7 US dollars per tonne in June, the year’s lowest, which led to an increase in the iron ore imports. After that prices kept rising to 88.6 dollars per tonne in October, while imports diminished.

The official said that enterprises may hoard iron ores for speculative purposes, which would push up the steel industry’s costs and possibly cast negative influence over China’s annual iron ore negotiations with the world’s iron ore suppliers.

The China Iron and Steel Association will soon publish supplements for the self-regulation convention of China’s iron ore imports, including setting stricter standards for iron ore import licenses, which were first issued in February.

It is reported that the debate over the next year’s iron ore benchmark prices has got off to an acrimonious start with China seeking to separate its negotiations from other countries while global giant miners refuse to budge downwards on prices.

Shan Shanghua, secretary-general of China’s top iron ore negotiator China Iron and Steel Association (CISA), said on Friday that iron ore contracts should run for a calendar year instead of beginning on April 1, according to the Japanese financial year.

“We will not insist on other countries taking China’s iron ore price as a reference,” he said at an iron ore conference in the coastal city of Qingdao.

The iron ore conference is usually regarded as the unofficial start of benchmark price negotiations for the next contract year.

“There may be another failure in agreeing a benchmark price next year, as happened this year, if CISA sticks to its position,” a mining executive familiar with the negotiations told China Daily on the sidelines of the conference on Friday.

“BHP prefers to use spot prices, which are market-oriented and index-linked,” he said. “If both sides are not happy with the benchmark price negotiation, the next year ore trading might again be based on spot rates.”Iron ore is the only commodity that is negotiated with a benchmark price system. Other commodities such as copper and oil are linked to an index.

This year’s iron ore price negotiations became deadlocked in June when China insisted on a 45-percent discount on 2008-09 prices after a 33-percent cut in benchmark iron ore prices had been set with other Asia steel mills.
Shan said Chinese steel mills would not be able to make money at the current price that iron ore producers are demanding because an oversupply is causing steel prices to fall sharply.

“If the demand side is always losing money while the supply side is always making huge profits, can that relationship survive long?” he asked, insisting that global miners should offer better terms.

Chinese iron ore imports rose 36 percent to 469.4 million tons in the first nine months from a year earlier, the Customs said on Oct 14. Shipments have exceeded real demand by 50 million tons, the steel association said on Oct 12.

But mining executives from iron ore producers said the iron ore price was driven by demand, even if the demand side suffers lower profits. As long as the demand is there, there will always be possibility of rising prices.

Miners are optimistic because the economic recovery is leading to increased demand for steel.

Samarco Mineracao, an iron ore pellet joint venture between miners BHP Billiton and Vale, expects to produce at full capacity next year as demand recovers, its chief commercial officer, Roberto Lucio Nunes de Carvalho, said on Friday.

“Our expectation is to produce at full capacity of 22 million tons in the next year,” he said. “Industry demand is improving. Next year will be much better than this year.”

However, some Chinese steel mills are not optimistic about next year’s steel demand. China’s steel industry may end up losing money next year as oversupply weighs on prices. That might force steel companies to cut production next year, said Han Weidong, deputy chief of the market section of Hebei Iron and Steel Group Co Ltd.
“China’s domestic steel demand is unlikely to reach 600 million tons next year, while tight bank lending next year could hurt both demand for steel and expansion at steel mills, restraining growth in iron ore consumption,” he said.

A sales representative from a Hebei-based private steel company also said his company felt times were hard now because steel prices have fallen sharply since August and the iron ore spot prices remained at a high level. He also said that if the situation continues for a month, they may make cutbacks.

It is said from Shan Shanghua (general secretary of China Iron & Steel Association) that CISA will strictly adopt a unified price and the agency system for imported iron ores next year.

CISA is reported to have removed about 10 enterprises off the list of companies with iron ore import qualification, while the association always added some new members to list in the past years. “It shows how determined CISA is in regulating the market.” Said an official with CISA.

A senior official of Shandong Iron & Steel told 21st Century Business Herald that CISA is actually preparing for the 2010 international iron ore negotiations now.

“Although CISA declares that negotiations for the 2009 prices are still going on, there won’t be any new results. We have begun preparing for the 2010 negotiations, but haven’t stated any real talk with the three iron ore suppliers.”

The senior official said.The three iron ore suppliers are Vale, BHP Billiton and Rio Tinto.At mid September, Tom Schutte, chief of BHP’s Sales Department, said that the talk for iron ore price in 2010 would start this October.

Although iron ore price talk is declared to start in October each year, the routine is that the real negotiation only begins in next year’s January, and both sides use the strategy of “playing for time” to add to its bargaining chip.Investment banks like Goldman Sacks, Merrill Lynch, UBS and JP Morgan, expect the iron ore price of long-term contracts may rise between 10 to 20 percent in 2010.However, Zeng Jiesheng, analyst with China’s information provider MySteel.com, says the investment banks may be exaggerating and the final price will largely rely on the market demand and supply.

According to MySteel.com statistics, Iron ore stock at major Chinese ports reached 73.32 million tons by 18 September. Currently, Chinese steel plants and traders are stocking iron ores on a dim outlook towards the 2010 international talk.